IRS Update February 16, 2010 Presented by Carol Zimmerman

2 Topics Covered  Recent guidance  Guidance in progress  Proposed pension legislation  Hybrid plan developments  Questions

3 Recent guidance  Final 430/436 regulations – 10/15/2009  Notice – Automatic approval  Takeover cases  Valuation software

4 Recent guidance  Notices and Notice Extended deadline for amendments  Market rate of return, cash balance plans  436 restrictions Expect exemption from 411(d)(6) protection  “To the extent” needed to comply with PPA vs.  “Pursuant to” PPA No extension for “anti-whipsaw” amendments

5 Recent guidance  Notice COLA increases Same as 2009 Future increases  Dollar limit – cumulative, must make up decrease in CPI before further increases  Compensation limit – year-by-year  Final regulations, 204(h)

6 Recent guidance  Rev. Proc – User fees “Automatic” 5-year extension for multiemployer plans - $1,000 (vs. $9,000) Change in funding method - $4,000 (vs. $2,800)  Notice – HEART guidance Compensation and pension benefits for employees in military service

7 Recent guidance  2009 Form 5500 with instructions Electronic filing requirement Includes Schedule SB/MB Excludes  Form 5500-EZ  Schedule SSA – now Form 8955-SSA  Expected release, spring 2010

8 Recent guidance  2009 Form 5500 with instructions Schedule SB instructions  More details – based on final regulations  Still some reserved sections End of year valuations Late quarterly installments  Change in rounding, ratio on line 16 Used to determine whether credit balances available Truncated instead of rounded

9 Recent guidance  Proposed Joint Board regulations Additional requirements, initial enrollment  EA-2A, EA-2B exams expire after 10 years  Need EA to certify experience Updated CPE requirements for renewal  Retained 36 hours, 3-year cycle  Fewer core credits, experienced EAs  “In-person” requirement  2 hours, ethics topics

10 Recent guidance  Proposed Joint Board regulations Reinstatement after inactive status  Additional CPE credits after 1 inactive cycle  Experience requirements after 2 inactive cycles Change in renewal cycle for program sponsors

11 Recent guidance  Proposed Joint Board regulations Standards of practice  General rule, comply with relevant laws and standards of professional responsibility  Requirement to report material violations  Rules regarding conflicts of interest  Due diligence

12 Recent guidance  Links to information PPA updates on IRS website at General summary of published guidance at Interest rate tables at

13 Recent guidance  Links to information Subscribe to IRS Guidewire for updates at View and subscribe to Employee Plans News at

14 In progress  Final regulations, section 430 Construction of minimum required contribution Quarterly installments Unpaid minimum required contributions

15 In progress  Proposed regulations, sections 430/436 WRERA changes (asset smoothing) Year-end valuations Mergers/ spinoffs Generally, items that had not been exposed for public comment

16 In progress  101(j) notice – 436 restrictions  Hybrid plan regulations  Multiemployer plan regulations

17 Pending pension legislation  Extended amortization periods  More asset smoothing  Additional look-backs Accrual restrictions, section 436(e) Ratio for use of credit balances “Zone” status for multiemployer plans  Delayed effective dates on section 436 restrictions for collectively bargained plans

18 Pending pension legislation  Pension relief legislation would also: Specify that investment-related expenses not included in target normal cost Extend 4010 reporting requirements to plans with $50 million underfunding Add fee disclosure and investment advice rules

19 Hybrid plan developments  Cash balance plans – accrued benefits Must still be expressed as annuity at normal retirement Must still meet definitely determinable standards Future interest built into accrued benefit  411(d)(6) protected  Projected interest must match crediting rate

20 Hybrid plan developments  Cash balance plans – accrual rules 133 1/3% rule almost always required  Can use projected interest to support graded pay credits  But cannot use interest unless rate guaranteed in plan language  Need to rebalance if current interest rate greater than PPA market rate of return

21 Hybrid plan developments  Cash balance plans – accrual rules RR shows issues with fractional rule  10-year average compensation vs. career average cash balance formula  Issues with impermissible forfeitures Per proposed regulations -- separate testing of formulas after 2008 only if:  Different basis (e.g., final avg. vs. career avg. pay)  Each formula meets 133 1/3% rule standing alone

22 Hybrid plan developments  Nondiscrimination testing Tests accruals for year Must be based on actual rate used to calculate accrued benefit May need snapshot date at end of year if rates change during year Need to consider change in rates to determine whether 3-year testing is adequate

23 Hybrid plan developments  415 limits apply Regulations require application based on actuarially equivalent single life annuity Not affected by “anti-whipsaw” provisions  411(a)(9) applies Normal retirement benefit cannot be less than benefit payable at any earlier commencement date

24 Hybrid plan developments  PEP plans Many of the same considerations as cash balance Accrued benefit as life annuity at NRA Need to meet accrual rules based on life annuity Nondiscrimination testing based on current-year accrued benefit BUT can use accrual rules other than 133 1/3%

25 Hybrid plan developments  PEP plans  Issues with plans that grant interest after termination of employment Includes plans using deferred annuity conversion factors Interest is built into accrued benefit May have impermissible forfeitures if interest is larger than accrual Accrual for the year is increase in formula offset by interest on prior-year benefit

26 Questions?